Battle lines drawn as Allergan rejects Valeant offer

Turns down $47bn takeover bid saying it undervalues the company

Allergan kicked the $47bn takeover offer from Valeant to the kerb yesterday, saying the Canadian firm's policy of acquiring products and cutting costs was unsustainable in the long term.

Quebec-based Valeant has however reiterated its determination to complete the deal and gain control of Allergan, which has built a thriving business on the back of wrinkle treatment Botox (onabotulinumtoxinA) and several other specialty pharmaceutical products.

Allergan chief executive David Pyott gave a bullish presentation to investors yesterday at which he confirmed that the company's board had unanimously rejected Valeant's offer as significantly undervaluing the firm.

Adopting a similar stance to AstraZeneca as it tries to fend off the advances of Pfizer, Allergan has published updated financial guidance spelling out the growth trajectory of the independent company under recently-appointed president Doug Ingram.

Pyott said earnings would rise 20-25 per cent this year, while revenues would increase at a double-digit percentage rate over the next five years, and the company plans to generate some $14bn in free cash flow over the same period to provide "strategic options".

"We can achieve this earnings growth because of the many products coming on line in the years to come that are in existing therapeutic areas where we already have fully developed promotion sales and market infrastructure not only in the US [and] around the world," he told investors.

"Our model works, whereas Valeant's model of cutting and slashing really doesn't work for more than a very short period of time," he continued, adding: "That shows up that in the … low growth that they produce."

Valeant teamed up with activist investor Bill Ackman's Pershing operation to make an unsolicited cash and stock offer for Allergan in April, and has already suggested that it would rein in Allergan's R&D spend and slash administrative expenses if a deal goes through, reducing costs by up to $2.7bn a year.

Pershing has already amassed a 9.7 per cent stake in Allergan, but a recently introduced poison pill defense means that investors will be able to buy shares at a steep discount if this rises above 10 per cent.

Valeant has grown at a phenomenal pace in recent years on the back of a series of acquisitions - including the $8.7bn purchase of eyecare specialist Bausch + Lomb last year - and has said it plans to become a top-five pharma company. It had approached Allergan in the past but was turned away, forcing it to go public with its bid.

The rumour mill is already grinding out the names of other companies that Allergan may decide to join with, including Shire. True to the usual narrative course on these occasions, Pyott ruled nothing out, but did say that these rumours probably "emanate from those that have a vested interest in creating them".